PDC Energy Announces 2020 First Quarter Results and Provides Projected 2020 Guidance

Source Company Press Release
Company PDC Energy, Inc.
Tags Corporate: Corporate Results, Guidance, Overview/Strategy, Country: United States, Financial - Costs & Metrics: Capital Expenditures, Hedging, Segment: Shale/Tight News
Date May 07, 2020

PDC Energy, Inc. (“PDC” or the “Company”) (Nasdaq:PDCE) today announced its 2020 first quarter operating and financial results.  The Company also provided detailed commentary regarding its 2020 operating plan.

2020 First Quarter Highlights:

  • In May, the Company’s semi-annual redetermination resulted in a borrowing base of $1.7 billion under its revolving credit facility with elected commitments remaining at $1.7 billion, resulting in total liquidity, as of April 30, 2020, of approximately $1.0 billion.

  • Net cash from operating activities of approximately $266 million and adjusted cash flows from operations, a non-U.S. GAAP metric defined below, of approximately $210 million. Both figures include approximately $20 million of general and administrative expense (“G&A”) related to SRC deal costs.

  • Oil and gas capital investments of approximately $260 million.

  • Approximately $50 million of free cash flow deficit, a non-U.S. GAAP metric defined below as net cash flows from operating activities, before changes in working capital, less oil and gas capital investments.  Free cash flow deficit for the quarter includes approximately $20 million of SRC deal costs.

  • Total production of 16.8 million barrels of oil equivalent (“MMBoe”) or approximately 185,000 Boe per day and oil production of 5.9 million barrels (“MMBbls”) or nearly 65,000 Bbls per day.

Full-Year 2020 Guidance Highlights:

  • Anticipated oil and gas capital investments between $500 and $600 million, representing a decrease of approximately 50 percent compared to PDC’s initial guidance provided in February 2020.

  • Anticipate generating more than $125 million of free cash flow, a non-U.S. GAAP metric defined as net cash flows from operating activities, before changes in working capital, less oil and gas capital investments.

  • Anticipated total production of 170,000 to 180,000 Boe per day with expected oil production averaging between 60,000 and 65,000 Bbls per day.

  • Approximately $135 million to $140 million of G&A, including cash and non-cash stock-based compensation, but excluding SRC deal costs.   

CEO Commentary

President and Chief Executive Officer Bart Brookman commented, “At PDC, we have a long-proven track record of prioritizing our financial strength through the conservative management of our balance sheet and the utilization of a systematic hedging program.  This has proven time and again to be a prudent strategy, with the 2015 price correction serving as our most recent example.  Today, the industry finds itself in unchartered waters due to a global pandemic and subsequent demand destruction forcing operators to make extremely difficult decisions.   However, at PDC, the quality of our assets and our willingness to quickly and decisively alter our operating plan has once again positioned us to succeed in a time of extreme duress on the industry.”

“The coming months will likely prove to be a dynamic time at PDC as we navigate our way through an incredibly fluid situation.  Rest assured that our ability to generate free cash flow, with a commitment to maintaining low leverage metrics and preserving our balance sheet are expected to serve as true differentiating factors.”

2020 Capital Investments and Financial Guidance

In response to the COVID-19 pandemic, decreased projected NYMEX oil prices and significantly widened differentials, the Company has modified its 2020 operating plan in order to maintain balance sheet strength, preserve adequate levels of liquidity and generate free cash flow.  Planned 2020 capital investments of $500 million to $600 million represent a decrease of approximately 50 percent compared to its original guidance of $1.0 to $1.1 billion provided in February.  The Company’s first quarter investments of approximately $260 million represent nearly 50 percent of the revised guidance. Approximate investments for the remainder of the year are expected to be less than $150 million in the second quarter, less than $50 million in the third quarter and more than $100 million in the fourth quarter.

PDC projects to generate more than $125 million of free cash flow, assuming $15 per Bbl WTI in the second quarter, $25 per Bbl WTI oil in the second half of 2020 and $2 per MMbtu NYMEX natural gas with NGL realizations of approximately $5 per barrel for the remainder of the year.  Additionally, the Company projects second quarter oil realizations to be less than 35 percent of NYMEX, with a modest recovery in the third quarter and fourth quarter realizations slightly less than that of the first quarter. Excluding SRC deal costs of approximately $20 million, the Company outspent adjusted cash flows by approximately $30 million in the first quarter.  Based on the aforementioned significant deterioration to projected realizations, PDC anticipates cash flow neutrality in the second quarter before generating strong levels of free cash flow in the second half of the year.

In Wattenberg, the Company expects to invest approximately $450 million in 2020, a decrease of $300 million from its original guidance. PDC plans to operate one drilling rig for the remainder of the year, after reducing its rig count from three to one later this month. The Company plans to release its completion crew this month with the expectation of resuming completions in the fourth quarter, assuming pricing supports such a decision.

The Company anticipates investing approximately $100 million in the Delaware basin, down from an original estimate of $300 million provided in February.  The 2020 Delaware basin capital program was recently completed for the year, with the expectation to spend less than $20 million on various leasing, non-operations projects and facility investments the remainder of the year.  

Production for 2020 is expected to decrease approximately ten percent from 2019 pro forma levels to a range of 170,000 to 180,000 Boe per day, with anticipated oil production of 60,000 to 65,000 Bbls per day.  The Company currently expects to curtail between 20 and 30 percent of its volumes in May, with additional curtailments likely in June. Based on current price, activity and curtailment assumptions, the Company expects second and third quarter volumes toward the bottom of its full-year range prior to an expected increase in the fourth quarter.

2020 G&A is expected to be between $135 and $140 million, representing a decrease of more than ten percent from the Company’s original guidance provided in February.  Updated G&A includes approximately $10 million in the first half of the year related to the integration of SRC and approximately $25 million for non-cash stock-based compensation.  Additionally, the updated range reflects the impact of several payroll and non-payroll G&A cost saving initiatives, including: a 15 percent voluntary pay cut to the senior management team and Board of Directors, a reduction-in-force of approximately 15 percent and tiered pay cuts for many of the remaining employees.  Additionally, the Company plans to begin a transitioned closure of its Bridgeport, WV, office in the third quarter, with a target completion date of early 2021.  Updated G&A does not include approximately $20 million of deal costs associated with the SRC merger incurred in the first quarter.

Given the historic nature of current volatility in the commodity price market, all projections are subject to change throughout the year.

The table below provides additional 2020 financial guidance:

       
  Low    High 
Production (MBoe/d)  170      180   
Capital Investments (millions)  500      600   
       
Operating Expenses 
LOE (millions)  180      200   
TGP ($/Boe)  0.85      1.00   
Production taxes (% of Crude oil, natural gas & NGLs sales)  6.5    7.5 
G&A (millions)  135      140   
               

2021 Preliminary Outlook

The Company’s preliminary 2021 Outlook contemplates total capital investment between $500 million and $600 million with approximately $100 million of projected free cash flow assuming $30 per Bbl WTI oil, $2.50 per Mcf NYMEX natural gas and NGL realizations of approximately $7.50 per barrel.  Additionally, the Company projects to grow both total and oil production by five to ten percent compared to 2020 while further improving its cost structure as it projects G&A of approximately $120 million to $125 million, which includes approximately $25 million of stock-based compensation.

Hedging Overview

In 2020, the Company has approximately 15.7 MMBbls of oil hedges at a weighted-average floor price of approximately $58 per Bbl.  Excluding approximately 3.8 MMBbls of settled hedges in the first quarter, the Company’s remaining swaps and costless collars represent approximately 75 percent of its projected oil volumes through year-end.  Approximately 35 percent of the Company’s estimated gas production between the second and fourth quarters are protected at approximately $2 per MMBtu. PDC’s 2021 hedge positions protect nearly 30 percent of its estimated oil volumes and 35 percent of estimated natural gas volumes at weighted-average floor prices of approximately $50 per barrel and $2.35 per MMBtu, respectively.

The Company’s hedging strategy is predicated on systematically layering in oil and natural gas swaps and costless collars, as well as evaluating basis swaps and physical hedges when appropriate.

Oil and Gas Production, Sales and Operating Cost Data

Crude oil, natural gas and NGLs sales, excluding net settlements on derivatives were $320 million, equivalent with 2019 levels of $321 million.  Sales between periods were similar due to a 34 percent reduction in sales price to $19.02 from $28.63 being offset by a 50 percent increase in production.  The decrease in sales price per Boe was driven by 17 percent, 53 percent and 50 percent decreases in weighted-average realized oil, natural gas and NGL prices, respectively; while the increase in production between periods was due to the merger with SRC.  The combined revenue from crude oil, natural gas and NGLs sales and net settlements received on commodity derivative instruments was approximately $365 million in 2020 compared to approximately $310 million in 2019.

The following table provides weighted-average sales price, by area, for the three months ended March 31, 2020 and 2019, excluding net settlements on derivatives and transportation, gathering and processing expenses (“TGP”):

     
    Three Months Ended March 31, 
    2020    2019    Percent
Change 
 
               
Crude oil (MBbls)               
Wattenberg Field    4,926      3,571      37.9   
Delaware Basin    963      954      0.9   
Total    5,889      4,525      30.1   
               
Weighted-average price    42.32      51.06      (17.1  )%   
               
 Natural gas (MMcf)               
Wattenberg Field    35,057      20,961      67.2   
Delaware Basin    6,290      4,690      34.1   
Total    41,347      25,651      61.2   
               
Weighted-average price    0.96      2.05      (53.2  )%   
               
NGLs (MBbls)               
Wattenberg Field    3,346      1,901      76.0   
Delaware Basin    719      514      39.9   
Total    4,065      2,415      68.3   
               
Weighted-average price    7.78      15.55      (50.0  )%   
               
Crude oil equivalent (MBoe)               
Wattenberg Field    14,115      8,965      57.4   
Delaware Basin    2,730      2,250      21.3   
Total    16,845      11,215      50.2   
               
Weighted-average price    19.02      28.63      (33.6  )%   
                         

Production costs for the first quarter of 2020, which include LOE, production taxes and TGP, were $82 million, or $4.84 per Boe, compared to $69 million, or $6.14 per Boe, in 2019.  LOE per Boe improved six percent compared to the first quarter of 2019 while TGP improved 22 percent over the comparable period.  Both improvements were related to increased volumes associated with the SRC merger.

The following table provides the components of production costs for the three months ended March 31, 2020 and 2019:

       
    Three Months Ended March 31,   
    2020    2019   
           
Lease operating expenses    49.5      35.2     
Production taxes    18.5      22.2     
Transportation, gathering and processing expenses    13.5      11.4     
Total    81.5      68.8     
     
     
    Three Months Ended March 31, 
    2020    2019 
         
Lease operating expenses per Boe    2.94      3.14   
Production taxes per Boe    1.10      1.98   
Transportation, gathering and processing expenses per Boe    0.80      1.02   
Total per Boe    4.84      6.14   
                 

Financial Results

Net loss for the first quarter of 2020 was approximately $466 million, or $4.94 per diluted share, compared to a net loss of $120 million, or $1.82 per diluted share in 2019.  The year-over-year change was due an impairment of approximately $880 million in 2020 offsetting an increase of approximately $625 million in commodity price risk management gain between periods.  Due to low prices, poor realizations and our current development plan, the Company has impaired proved and unproved properties in its Delaware basin asset. Adjusted net loss, a non-U.S. GAAP financial measure defined below, was $760 million in 2020 compared to an adjusted net income of $18 million in 2019.  Excluding the aforementioned impairment resulted in an adjusted net loss of $92 million in 2020.  The difference between adjusted net income (loss) between periods is primarily attributable to a change in value of both settled and unsettled derivatives associated with the dramatic decrease in the commodity price outlook between periods.

Net cash from operating activities for the first quarter of 2020 was approximately $266 million compared to $157 million in the comparable 2019 period.  The year-over-year increase was primarily due to increased commodity derivative settlements and the change in our working capital, partially offset by increased operating costs. Adjusted cash flows from operations, a non-U.S. GAAP metric defined below, was approximately $210 million in the first quarter of 2020 compared to approximately $193 million in the comparable 2019 period. The year-over-year increase was primarily due to the factors mentioned above for changes in operating activities, without regard to changes in our working capital.

G&A, which includes cash and non-cash expense, was $62 million, or $3.69 per Boe, in the first quarter of 2020 compared to $40 million, or $3.53 per Boe, in 2019.  First quarter 2020 G&A includes approximately $20 million, or $1.19 per Boe, of deal costs associated with the SRC merger, while 2019 G&A included approximately $3 million, or $0.25 per Boe, related to the Delaware midstream divestitures.  Excluding these one-time expenses would have resulted in a 24 percent improvement in G&A to approximately $2.50 per Boe in 2020 from $3.28 per Boe in 2019.

Reconciliation of Non-U.S. GAAP Financial Measures

We use "adjusted cash flows from operations," "free cash flow (deficit)," "adjusted net income (loss)" and "adjusted EBITDAX," non-U.S. GAAP financial measures, for internal management reporting, when evaluating period-to-period changes and, in some cases, in providing public guidance on possible future results. In addition, we believe these are measures of our fundamental business and can be useful to us, investors, lenders and other parties in the evaluation of our performance relative to our peers and in assessing acquisition opportunities and capital expenditure projects. These supplemental measures are not measures of financial performance under U.S. GAAP and should be considered in addition to, not as a substitute for, net income (loss) or cash flows from operations, investing or financing activities and should not be viewed as liquidity measures or indicators of cash flows reported in accordance with U.S. GAAP. The non-U.S. GAAP financial measures that we use may not be comparable to similarly titled measures reported by other companies. In the future, we may disclose different non-U.S. GAAP financial measures in order to help us and our investors more meaningfully evaluate and compare our future results of operations to our previously reported results of operations. We strongly encourage investors to review our financial statements and publicly filed reports in their entirety and to not rely on any single financial measure.

Adjusted cash flows from operations and free cash flow (deficit). We believe adjusted cash flows from operations can provide additional transparency into the drivers of trends in our operating cash flows, such as production, realized sales prices and operating costs, as it disregards the timing of settlement of operating assets and liabilities. We believe free cash flow (deficit) provides additional information that may be useful in an analysis of our ability to generate cash to fund exploration and development activities and to return capital to stockholders.

We are unable to present a reconciliation of forward-looking free cash flow because components of the calculation, including fluctuations in working capital accounts, are inherently unpredictable. Moreover, estimating the most directly comparable GAAP measure with the required precision necessary to provide a meaningful reconciliation is extremely difficult and could not be accomplished without unreasonable effort. We believe that forward-looking estimates of free cash flow are important to investors because they assist in the analysis of our ability to generate cash from our operations in excess of capital investments in crude oil and natural gas properties.

Adjusted net income (loss). We believe that adjusted net income (loss) provides additional transparency into operating trends, such as production, realized sales prices, operating costs and net settlements on commodity derivative contracts, because it disregards changes in our net income (loss) from mark-to-market adjustments resulting from net changes in the fair value of our unsettled commodity derivative contracts, and these changes are not directly reflective of our operating performance.

Adjusted EBITDAX. We believe that adjusted EBITDAX provides additional transparency into operating trends because it reflects the financial performance of our assets without regard to financing methods, capital structure, accounting methods or historical cost basis. In addition, because adjusted EBITDAX excludes certain non-cash expenses, we believe it is not a measure of income, but rather a measure of our liquidity and ability to generate sufficient cash for exploration, development, acquisitions and to service our debt obligations.

Beginning in the third quarter of 2019, we included a reconciling item for gains or losses on the sale of properties and equipment when calculating adjusted EBITDAX, thereby no longer including such gains or losses in our reported adjusted EBITDAX. We believe this methodology for calculating adjusted EBITDAX will enable greater comparability to our peers, as well as consistent treatment of adjustments for impairment and gains or losses on the sale of properties and equipment. For comparability, all prior periods presented have been conformed to the aforementioned methodology.

 
Cash Flows from Operations to Adjusted Cash Flows from Operations and Free Cash Flow (Deficit) 
    Three Months Ended March 31, 
    2020    2019 
Cash flows from operations to adjusted cash flows from operations and free cash flow (deficit):         
Net cash from operating activities    266.3      157.1   
Changes in assets and liabilities    (56.5    35.4   
Adjusted cash flows from operations    209.8      192.5   
Capital expenditures for development of crude oil and natural gas properties    (190.8    (242.2 
Change in accounts payable related to capital expenditures    (70.0    (39.7 
Free cash flow (deficit)    (51.0    (89.4 
                 
 
Net Loss to Adjusted Net Income (Loss) and Adjusted Earnings Per Share, Diluted 
    Three Months Ended March 31, 
    2020    2019 
Net loss to adjusted net income (loss):         
Net loss    (465.0    (120.2 
(Gain) loss on commodity derivative instruments    (434.7    190.1   
Net settlements on commodity derivative instruments    45.8      (8.5 
Tax effect of above adjustments    94.3      (43.4 
Adjusted net income (loss)    (759.6    18.0   
         
Earnings per share, diluted    (4.94    (1.82 
(Gain) loss on commodity derivative instruments    (4.62    2.87   
Net settlements on commodity derivative instruments    0.49      (0.13 
Tax effect of above adjustments    1.00      (0.65 
Adjusted earnings per share, diluted    (8.07    0.27   
Weighted-average diluted shares outstanding    94.1      66.3   
         
 
Adjusted EBITDAX 
    Three Months Ended March 31, 
    2020    2019 
Net loss to adjusted EBITDAX:         
Net loss    (465.0    (120.2 
(Gain) loss on commodity derivative instruments    (434.7    190.1   
Net settlements on commodity derivative instruments    45.8      (8.5 
Non-cash stock-based compensation    5.7      4.7   
Interest expense, net    24.2      17.0   
Income tax benefit    (7.7    (37.4 
Impairment of properties and equipment    881.1      7.9   
Exploration, geologic and geophysical expense    0.1      2.6   
Depreciation, depletion and amortization    176.2      151.4   
Accretion of asset retirement obligations    2.6      1.6   
Gain on sale of properties and equipment    (0.2    (0.4 
Adjusted EBITDAX    228.1      208.8   
         
Cash from operating activities to adjusted EBITDAX:         
Net cash from operating activities    266.3      157.1   
Interest expense, net    24.2      17.0   
Amortization of debt discount and issuance costs    (3.6    (3.3 
Exploration, geologic and geophysical expense    0.1      2.6   
Other    (2.4    —   
Changes in assets and liabilities    (56.5    35.4   
Adjusted EBITDAX    228.1      208.8   
                 

PDC ENERGY, INC.
Condensed Consolidated Statements of Operations
(unaudited, in thousands, except per share data)

     
    Three Months Ended March 31, 
    2020    2019 
Revenues         
Crude oil, natural gas and NGLs sales    320,315      321,099   
Commodity price risk management gain (loss), net    434,698      (190,074 
Other income    2,017      3,475   
Total revenues    757,030      134,500   
Costs, expenses and other         
Lease operating expenses    49,534      35,221   
Production taxes    18,470      22,168   
Transportation, gathering and processing expenses    13,496      11,424   
Exploration, geologic and geophysical expense    136      2,643   
General and administrative expense    62,165      39,598   
Depreciation, depletion and amortization    176,157      151,422   
Accretion of asset retirement obligations    2,620      1,584   
Impairment of properties and equipment    881,074      7,875   
Gain on sale of properties and equipment    (179    (369 
Other expenses    2,144      3,554   
Total costs, expenses and other    1,205,617      275,120   
Loss from operations    (448,587    (140,620 
Interest expense, net    (24,173    (16,968 
Loss before income taxes    (472,760    (157,588 
Income tax benefit    7,745      37,412   
Net loss    (465,015    (120,176 
         
Earnings per share:         
Basic    (4.94    (1.82 
Diluted    (4.94    (1.82 
         
Weighted-average common shares outstanding:         
Basic    94,077      66,182   
Diluted    94,077      66,182   
             

PDC ENERGY, INC.
Condensed Consolidated Balance Sheets
(unaudited, in thousands, except share and per share data)

         
    March 31, 2020    December 31, 2019 
Assets         
Current assets:         
Cash and cash equivalents    61,244      963   
Accounts receivable, net    270,012      266,354   
Fair value of derivatives    379,355      28,078   
Prepaid expenses and other current assets    9,800      8,635   
Total current assets    720,411      304,030   
Properties and equipment, net    5,034,494      4,095,202   
Fair value of derivatives    58,094      3,746   
Other assets    66,792      45,702   
Total Assets    5,879,791      4,448,680   
         
Liabilities and Stockholders' Equity         
Liabilities         
Current liabilities:         
Accounts payable    223,277      98,934   
Production tax liability    121,615      76,236   
Fair value of derivatives    11,620      2,921   
Funds held for distribution    165,247      98,393   
Accrued interest payable    20,349      14,284   
Other accrued expenses    75,333      70,462   
Total current liabilities    617,441      361,230   
Long-term debt    1,896,324      1,177,226   
Deferred income taxes    —      195,841   
Asset retirement obligations    138,654      95,051   
Fair value of derivatives    14,030      692   
Other liabilities    353,378      283,133   
Total liabilities    3,019,827      2,113,173   
         
Stockholders' equity         
Common shares - par value $0.01 per share, 150,000,000 authorized,
99,438,122 and 61,652,412 issued as of March 31, 2020 and
December 31, 2019, respectively 
  994      617   
Additional paid-in capital    3,372,711      2,384,309   
Retained deficit    (512,960    (47,945 
Treasury shares - at cost, 20,493 and 34,922
 as of March 31, 2020 and December 31, 2019, respectively 
  (781    (1,474 
Total stockholders' equity    2,859,964      2,335,507   
Total Liabilities and Stockholders' Equity    5,879,791      4,448,680   
         

PDC ENERGY, INC.
Condensed Consolidated Statements of Cash Flows
(unaudited, in thousands)

     
    Three Months Ended March 31, 
    2020    2019 
Cash flows from operating activities:         
Net loss    (465,015    (120,176 
Adjustments to net loss to reconcile to net cash from operating activities:         
Net change in fair value of unsettled commodity derivatives    (388,875    181,622   
Depreciation, depletion and amortization    176,157      151,422   
Impairment of properties and equipment    881,074      7,875   
Accretion of asset retirement obligations    2,620      1,584   
Non-cash stock-based compensation    5,672      4,683   
Gain on sale of properties and equipment    (179    (369 
Amortization of debt discount, premium and issuance costs    3,640      3,349   
Deferred income taxes    (6,331    (37,487 
Other    1,011      21   
Changes in assets and liabilities    56,507      (35,424 
  Net cash from operating activities    266,281      157,100   
Cash flows from investing activities:         
Capital expenditures for development of crude oil and natural gas properties    (190,768    (242,187 
Capital expenditures for other properties and equipment    (455    (4,826 
Acquisition of crude oil and natural gas properties    (139,812    —   
Proceeds from sale of properties and equipment    793      102   
Proceeds from divestitures    62      —   
  Net cash from investing activities    (330,180    (246,911 
Cash flows from financing activities:         
Proceeds from revolving credit facility    917,000      432,000   
Repayment of revolving credit facility    (304,000    (340,500 
Payment of debt issuance costs    (4,666    —   
Purchase of treasury shares    (23,819    —   
Purchase of treasury shares for employee stock-based compensation tax withholding obligations    (7,693    (1,460 
Redemption of senior notes    (452,153    —   
Principal payments under financing lease obligations    (489    (494 
Other    —      (21 
  Net cash from financing activities    124,180      89,525   
Net change in cash, cash equivalents and restricted cash    60,281      (286 
Cash, cash equivalents and restricted cash, beginning of period    963      9,399   
Cash, cash equivalents and restricted cash, end of period    61,244      9,113   
                 

2020 First Quarter Teleconference and Webcast

The Company invites you to join Bart Brookman, President and Chief Executive Officer; Scott Meyers, Chief Financial Officer; Lance Lauck, Executive Vice President Corporate Development and Strategy; and Scott Reasoner, Senior Vice President Chief Operating Officer, for a conference call on Friday, May 8, 2020, to discuss its 2020 first quarter results. The related slide presentation will be available on PDC's website at pdce.com.

Conference Call and Webcast:
Date/Time: Friday, May 8, 2020 at 11:00 a.m. ET
Domestic (toll free): 877-312-5520
International: 1-253-237-1142
Conference ID: 1661099
Webcast: available at pdce.com

Replay Information:
Domestic (toll free): 855-859-2056
International: 1-404-537-3406
Conference ID: 1661099
Webcast Replay: available for six months at pdce.com

Upcoming Investor Presentations
PDC is scheduled to participate in the JP Morgan Energy, Power and Renewable Conference on Wednesday, June 17, 2020.  An updated presentation will be posted to the Company’s website, pdce.com, prior to the start of the conference.

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